1. What is a Debt-to-Income (DTI) Ratio Calculator?

Definition: This calculator determines your debt-to-income ratio, which compares your monthly debt payments to your gross monthly income.

Purpose: Lenders use DTI to evaluate your ability to manage monthly payments and repay debts, especially for mortgages and loans.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• \( DTI \) — Debt-to-Income ratio (percentage)
• \( Debt \) — Total monthly debt payments (dollars)
• \( Income \) — Gross monthly income before taxes (dollars)

Explanation: The ratio shows what percentage of your income goes toward debt payments each month.

3. Importance of DTI Ratio

Details: Most lenders prefer a DTI below 36%, with no more than 28% going toward housing expenses. A lower DTI indicates better financial health.

4. Using the Calculator

Tips: Include all monthly debt obligations (mortgage/rent, car payments, credit cards, student loans, etc.) and your total pre-tax income.

5. Frequently Asked Questions (FAQ)

Q1: What's a good DTI ratio?
A: Ideal is ≤36%. 36-43% may qualify but with stricter requirements. Above 50% is typically unacceptable to most lenders.

Q2: What debts should I include?
A: Include all recurring monthly debts: housing, auto loans, credit cards, student loans, personal loans, alimony/child support.

Q3: Should I use gross or net income?
A: Lenders use gross income (before taxes) for DTI calculations.

Q4: How can I improve my DTI ratio?
A: Either increase your income or reduce your debt payments by paying down balances or consolidating debts.

Q5: Does this include living expenses?
A: No, only debt payments. Living expenses like utilities, groceries aren't included in DTI calculations.